About Giles

Giles is the founder and managing director of ContractStore. It was his idea to set up a company selling documents online and he has played a major part in the company's development. He is an English solicitor, with over thirty years' experience of drafting and negotiating commercial and construction contracts in the UK and overseas. Giles has long been convinced that there is a quicker and simpler approach to the delivery and supply of most contracts, and he is an active proponent of the use of plain English in legal documents. He specialises in the drafting of construction and engineering contracts and as well as contributing contracts to the ContractStore website, he is co-author of the JCT Constructing Excellence Contract and of 'Exporting Made Easy' with Simon Bedford.

Are your Website Terms of Business ready for the new Consumer Regulations?

New regulations concerning the sale of goods and services to consumers come into effect in June. The great majority of businesses selling goods or services online as well as door step and other “off-premises” sales will be affected.

The Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 come into effect on 13 June 2014. They replace the existing the Distance Selling Regulations and the Doorstep Regulations.

Although many of the existing regulations will continue, they have been updated in various ways and there are a number of changes that you will need to make to your terms and conditions.

So, be prepared to update your Terms of Business for online sales on your website as well as for off-premises sales. And remember, these Regulations apply to the sale of services as well as goods.

ContractStore’s Terms & Conditions for online sale of goods  (document A179) have been updated and are available to buy and download from our website.

Here are some of the key points in the new Regulations:

 Information     Lots of information must be given by the trader to the consumer before the contract is made.  This pre-contract information will be treated as information forming part of the contract. If this information is not provided, the consumer may not be bound by the contract.

Schedule 2 of the regulations details 24 separate bits of information to be provided. These include:

  • the main characteristics of the goods or services
  • the identity of the trader and his address and contact details
  • if the trader is selling on behalf of someone else, the address and identity of that other trader is also needed
  • the total price of the goods or services including taxes or, if this cannot be calculated in advance, an explanation of how it will be calculated
  • where applicable, any additional delivery charges or  other costs
  • where the contract is open ended or the consumer is paying a subscription, the total monthly or other regular payments
  • arrangements for payment, delivery, performance and timing
  • where there is a cancellation right, details concerning this
  • when applicable, the terms of any after sales service
  • the duration of the contract and if this is open ended, the conditions for terminating and the minimum contract period, if there is one.

Making the Contract.   In the case of online business, the information items in italics above are the minimum that the trader must provide ‘in a clear and prominent manner’ before the consumer places an order.

Also the website must have wording that ensures the consumer, when placing an order, explicitly acknowledges the obligation to pay for the goods or services being ordered.

Unless the trader complies with these requirements, the consumer is not bound by the contract..

Once an order is placed, the trader must confirm the contract within a reasonable time and before the delivery of goods or start of services.  email confirmation is acceptable.

Sales by Phone.  Anyone making a phone call to get a contract must at the beginning of the conversation identify the trader’s identity, the purpose of the call and the identity of any third party on whose behalf the call is being made.   

Delivery.     The contract will automatically contain an implied term requiring retailers to deliver goods and services without delay and in any event within 30 days from the contract date

 Risk.   Until goods come into the physical possession of the consumer, risk of loss or damage remains with the trader. This will not apply if the consumer arranges transportation with a carrier who has not been recommended by the trader.

Cancellation Rights.  Consumers will have 14 days in which to cancel a contract. This period replaces the existing period of 7 working days.  The 14 day period starts the day after the contract is made in the case of a service contract or contract for the supply of digital content online.

In the case of goods, the cancellation period ends at the end of 14 days after the day on which the last of the goods came into the physical possession of the consumer (or someone identified by him – e.g. the person to whom a gift is being delivered).

The Regulations contain a model cancellation form and consumers should be given the option to use this, but any clear statement of cancellation will be effective provided it is given within the 14 day period.

If the trader does not spell out the consumer’s cancellation rights, then the consumer has the right to cancel the contract at any time within 12 months. It is also an offence, punishable by a fine.

Refunds.   If the consumer cancels the contract and returns the goods, the trader must make a full refund within 14 days.  This includes the basic cost of delivery if the consumer paid for the goods to be delivered to him. Where there is no delivery of goods, the refund must be within 14 days after the trader is informed of the cancellation.

If the value of the goods has been reduced by the consumer’s handling, the trader can deduct an appropriate amount from the refund.

Return of Goods.  The trader is responsible for collecting the goods if:

  • he has offered to collect them or
  • the goods were delivered to the consumer’s home and they cannot, by their nature, normally be returned by post.

In other cases, the consumer is responsible for sending the goods back to the address specified by the trader. The consumer is responsible for the cost of returning goods unless either the trader has agreed to meet those costs or he failed to tell the consumer about the consumer bearing the cost in the information provided at the beginning.

Services in Cancellation Period.   The trader must not start services within the cancellation period unless he is asked to by the consumer. If services are then performed in full, the consumer’s cancellation right is lost. If services are partly performed and the consumer cancels within the 14 day period, the trader is entitled to payment on a proportionate basis for those services.

Supply of Digital Content.    Where there is a contract online for the supply of digital content, the trader should not supply the content before the end of the cancellation period unless the consumer has given express consent for early delivery and the consumer has acknowledged that the right to cancel the contract will not apply.  So, if you are selling downloads of music or maps, you need wording to ensure that the consumer agree to waive his cancellation rights as he goes through the buying process on your website.

Helpline Charges.    If it trader operates a helpline, this must not involve the consumer in phone charges above the basic rate. If it does, the trader is obliged to refund the extra cost to the consumer.

 Excluded Contracts.   These Regulations do not apply to certain contracts including: financial services and insurance; leases of property and contracts for the sale of land; contracts for construction of new buildings or conversion of existing buildings.

 Exclusion of Cancellation Rights.   The right to cancel a contract does not apply in some circumstances including:

  • goods that are tailor-made for the consumer or personalised in some other way;
  • goods that are liable to deteriorate or expire rapidly, such as fresh food;
  • goods or services where the price is dependent on fluctuations in the financial markets;
  • newspapers and magazines;
  • sealed goods which, after delivery, are unsealed and are no longer suitable for  return due to health or hygiene reasons – e.g. underwear;
  • audio or computer software that is supplied sealed and then unsealed after delivery;
  • goods that become inseparably mixed after delivery – e.g. sand mixed with cement.

For ContractStore’s template Terms of Business for the Sale of Goods Online click here

For more detailed information, the Regulations are available online and are quite easy to read.  Also there is Guidance published by the Department of Business Innovation & Skills.

 

 

Exclusion Clauses – Ensure Explicit Drafting

Exclusion clauses in contracts need to be drafted very specifically and all limits on liability must be set out explicitly. The recent case of Markerstudy Insurance Co. Ltd v Endsleigh Insurance Services Ltd [2010] EWHC 281 (Comm) is a stark reminder of those principles.

Brief summary of the facts

The defendants, Endsleigh, were engaged by Markerstudy to provide claims handling services concerning a number of agreements. Markerstudy alleged numerous breaches of these agreements which whilst individually may not have been significant, collectively they amounted to losses of £14m. In its defence, Endsleigh sought to rely on numerous limitation and exclusion clauses contained in the contracts.

The court was required to determine two points of construction:

Firstly in relation to the exclusion of liability where the clause provided as follows: “Neither party shall be liable to the other for any indirect consequential loss (including but not limited to loss of goodwill, loss of business, loss of anticipated profit or savings and all other pure economic loss) arising out of or in connection with this Agreement.”  The claimant maintained that by virtue of this clause the defendant was exempted from liability for indirect and consequential losses only. The defendant submitted that it was also exempted from direct losses falling under the heads of loss specified in the clause.

Secondly in respect of the cap on liability; the clause provided that Endsleigh’s total liability in contract, tort, misrepresentation, restitution or otherwise, be limited to the aggregate amount of fees received under the contract. The defendant maintained that this cap of approximately £3.9m included any claims for interest.

The decision

On the interpretation of the exclusion clause, the court found in favour of the claimant, stating: “The use of the phrase ‘including but not limited to’ is a strong pointer that the specified heads of loss are but examples of the excluded indirect loss.” In respect of the cap on liability; the court found in the defendant’s favour in respect of contractual claims for interest.

What are the commercial implications?

This case clearly highlights the need to be explicit and to draft in express terms whenever you are seeking to exclude or cap liability under a contract. If you want to include specific exclusion then parties must consider the specific structure of the clause. Parties need to understand the risks they are accepting and that this allocation is reflected in the contract. SO

1 Consider the commercial negotiations as preparation for any contract;

2 Consider risk allocation – parties should consider how the allocation of risk should be apportioned appropriately between the parties and this allocation needs to be reflected in the contract in express and explicit terms;

3 Ensure that any limitation or exclusion in an agreement does not invalidate your insurance.

4 Know the heads of loss that you want to exclude and the precise nature of the cap on liability which should be stated explicitly in the contract.

5 The term indirect or consequential loss is not a precise term; it should only be used at the end of an exclusion clause as a final catch all precaution and to avoid the potential contamination of the entire clause.

Example of an exclusion clause

1. Neither party shall be liable to the other for any:

a) loss of goodwill

b) loss of business

c) loss of anticipated profit or savings

d) pure economic loss; or

e) any indirect or consequential losses arising out of or in connection with this Agreement.

With respect to any cap on liability, clearly state the precise nature of the cap on liability or a specific figure.

Contributed by Sharonjeev Benning-Prince

 

What You Need to Know about Distributor & Reseller Agreements

 If you want to increase sales in a new area whether in your own country or overseas, there are two principal methods, apart from setting up a branch of your business there.  One is to appoint an agent who will promote your goods and find buyers for you.  The other is to appoint a distributor or reseller who will buy your products and then resell them in his territory.

 Once you have decided on the territory that you want to cover, you will need to find a suitable candidate to resell your products.  This is not an easy task and it certainly needs to be undertaken with care, and plenty of due diligence. There is advice on how to go about this in Exporting Made Easy , a book that I have co-written and it is available online at www.exporting-made-easy.com

Once you have selected your distributor, be sure to have a written agreement with him setting out the terms of the deal which allows you to bring the arrangement to an end if things do not work out satisfactorily. You should also get local legal advice before signing an agreement because there could be local laws which you need to take into account – for example, it might be necessary for a distributor to be owned by nationals of the country.

 Set out below are some of the main issues that you need to consider and to cover in your distributorship agreement.

Specify the products and the territory

if you have more than one product line, it may be sensible to restrict the agreement to one or two lines initially to see how things go. You can always add more products later. As for the territory, this needs to be clearly defined. 

Exclusive or Non-exclusive

Are you going to appoint the distributor on an exclusive or non-exclusive basis – i.e.will he be the only person in that territory who is entitled to sell your products. Even if you agree to an exclusive arrangement, you might want to reserve some existing customers to deal with direct, in which case cover this in the agreement.

Duration

What is the initial term of the agreement?   Make it long enough to give the distributor time to get established and into the market with your products, but no longer. It can then be renewable yearly if things work out.

Orders, Prices and Payment

The agreement should set out the arrangements for ordering products as well as prices and payment terms.   Depending on the nature of your business, it can be useful to have forward estimates of orders so that you will have sufficient stock to meet the distributor’s requirements.

It is usual to specify that each order which is accepted constitutes a separate contract between the two parties and that the sales are made on your standard terms and conditions.  You might want to attach a copy of these to the agreement.

There will probably be a schedule setting out the prices of the various products and this could include some trade discounts depending on volume etc.

As for payment terms, you do not want any more exposure than is necessary. Payment prior to shipment is one possibility and another is to have the distributor set up a confirmed irrevocable letter of credit.

It is not normally lawful to fix the resale prices that your distributor will charge so there is always a risk that he will offer your products at a lower price than another distributor.

  Sales Targets. 

You should certainly include some agreed sales targets in the agreement because this allows you to monitor the distributor’s performance. Coupled with the sales targets should be a provision that not only allows you to revise the targets but also entitles you to bring the contract to an end if, for example, minimum targets are not achieved for two or three consecutive quarters.

 General Obligations

It is sensible to identify what marketing material and technical data you will provide and if training of the distributor’s sales staff is needed.  You may also want to have terms that require the distributor to have a marketing budget, to report on sales on a regular basis etc.

 Intellectual property

Make sure that you protect your copyright, patents and trademarks. Your distributor should only be allowed to use them while the agreement remains in place and it is sensible to have a clause which requires him to notify you and to act to protect your interests if, for example, counterfeit goods appear in the market in his territory.

Termination

Always include a clause that allows you to bring the contract to an end if the distributor fails to meet his targets or commits some other breach of contract or becomes insolvent.   Terminating an agreement of this type in some countries might  lead to substantial compensation claims so you need to take legal advice before finalising the wording.

Non-competition and Confidentiality

You may want a clause that prevents the distributor from selling any products that compete with your own both during the agreement and, perhaps, for a period after it has come to an end. In addition, you will probably want to be sure that the terms of the agreement are kept confidential.

Dispute resolution and Governing Law

While you might want English law to apply and any disputes to be dealt with in the English courts, if the distributor is based overseas and has no assets in this country, getting a judgement and then enforcing it against him might prove rather difficult.  An international arbitration clause could well be preferable and we have some free information on our website concerning this topic.

Our template for appointing a distributor can be found here http://www.contractstore.com/A117-distributorship-agreement

What You Need to Know about Partnership Agreements

One advantage of setting up a business as a partnership is that, unlike a company, there is no need to register the business.

 

In fact there are very few formalities, which is one reason why it is sensible to have a written partnership agreement that sets out the basic rules between the partners for running the business.

The main difference between a partnership and a limited company is that a partnership does not have a separate legal personality apart from its members in a way that a limited company does.  (The situation is different for a limited liability partnership, but that is more like a company and has to be registered at Companies House).

So the partners are jointly and severally liable for the obligations of the partnership i.e. each partner can be sued for the full amount of any liability of the partnership. There is no limit on liability

Also, the partners are taxed on an individual basis, by reference to their share of the profits each year.

The law governing partnerships goes right back to 1890 and it is a lot easier to read than today’s statutes.  But while it has stood the test of time, the Partnership Act does not always deal with issues as the partners want to deal with them.

Why You Need a Partnership Agreement

Without an agreement, there can be uncertainties as to the relationship between the partners and how the partnership should be run.  For example, in the absence of a partnership agreement, on the death of a partner, the partnership has to be dissolved.  This might not be in the interests of the surviving partners who wish to keep the business going.

Similarly, in the absence of any agreement to the contrary, the partners have the right to share equally in the capital and profits of the business.

What specific terms should you consider for your partnership?

Here are some of the basics to cover in the agreement that all the partners need to sign.

  •  Name, Business, Start Date

When starting the business you need to agree on the name and start date of the business and the annual accounting year. Also, you need to agree on the scope of the business and write all these details down.

  • Capital & Profits

How much money or other assets – e.g. equipment or knowhow – will each partner put into the business to get it going?  Also, you should specify the profit shares – otherwise all profits are divided equally.

And if there are loans to the business form any of the partners, these need to be documented.

  • Drawings

In most modern firms, each partner will draw an agreed amount out of the income each month, rather like a salary, and his profit share will then be adjusted at the end of the year. But usually the agreement will say that if there is not enough money in the bank, drawings cannot be taken.

  • Management & decision-making

There should be an arrangement for holding regular meetings of the partners where the business will be reviewed and decisions taken. In a small firm this may mean that all the partners need to agree before any decision can be implemented.  But often there will be a majority vote on routine matters and unanimity reserved for the important issues – introducing a new partner, raising a loan or buying property etc.

If the partnership decides to delegate some decisions to an individual partner, this should be recorded – either in a partnership decision or in the agreement.  And it is advisable to require that partner to report to partnership meetings, so that all the partners know what is going on

The procedure for meetings, quorum, who will act as chairman, circulation of minutes etc. can usefully be covered in the agreement.

  •  Accounts

Preparation of regular management accounts is another important matter as well as having a firm of accountants appointed to prepare the annual accounts of the business.

  • Permitted partnership expenses

Petty arguments over what expenses can be charged up to the firm are best avoided, so spell out the main points in the agreement and decide any changes at a formal partners meeting.  Mobile phones, laptops, car expenses etc. can all be covered.

  • Holidays

As partners are not employees of the business they do not have any statutory rights so you need to set out the holiday entitlement of the partners, as well as maternity leave etc.

  • Retirement or death of a partner

With current legislation a fixed retirement age can be problematic, as the partnership may face a claim for age discrimination.  But you need to have a reasonable notice period if anyone wants to leave the partnership – maybe six months or longer, preferably to take effect at the end of the financial year.

If a partner dies, the agreement should say what happens to their share – it will probably need to be paid for by the surviving partners in proportion to their shares in the business.  This also applies when a partner retires.

Accounts will need to be prepared by the firm’s accountants when a partner retires, and the firm may want to retain enough to cover any tax liability that is anticipated before paying the retired partner’s final profit share.

Repayment of capital to a partner who retires or dies may be spread over a period

  • Expulsion

Hopefully there will be no need to expel a partner for misconduct but you should have a clause to deal with this possibility.  This will also specify how any money due to her will be repaid – probably only after any losses she caused the firm have been quantified and recovered.

  • Restrictions on partners

Serious harm can be done to a business if one of the partners, without any consultation, makes commitments to third parties, and you should include a clause designed to avoid those risks.  In addition, any partner who fails to comply should be required to indemnify the others so that they do not suffer loss.

Restrictions on a partner having an interest in any business that competes with the partnership may also be required, and this can be particularly important if a partner leaves, to prevent him/her from taking business away.  Departing partners should also be prevented from poaching staff.

  • Other clauses are needed to deal with issues such as confidentiality and disputes.

Related Downloads:

ContractStore has three forms of partnership agreement – for partnerships with two, three or more than three partners. We also offer partnership agreements for use in India

What You Need to Know About Selling Online

Retail online is continuing to increase: with low setup costs and the potential to reach niche and mass markets worldwide it’s an attractive proposition. But if you are selling online there are some important rules you need to know about to protect your business – and your customers.

Your terms and conditions of sale must be displayed on your website where the goods are being sold and they must comply with the various regulations that apply.

The key features of the ‘Distance Selling’ regulations in the UK are:

  • you must give consumers clear information including:
    • details of the goods or services offered
    • delivery arrangements and payment
    • seller details including geographical address
    • the consumer’s cancellation right before they buy (known as prior information)
  • you must also provide this information in writing
  •  goods must be delivered within 30 days unless agreed otherwise
  • the consumer has a cooling-off period of seven working days. The cooling off period begins as soon as the order has been made. In the case of goods, it ends seven working days after the day of receipt of the goods. In the case of services, it ends seven working days after the day the order was made but if the consumer agrees to the service beginning within the seven days, the right to cancel ends when the service starts
  • where consumers notify the supplier in writing or another durable medium that they wish to cancel the contract, they must be refunded all money paid within 30 days.

So your Terms and Conditions need to cover all these points and useful clauses can also include:

  • Price – the price of goods must be shown clearly to the customer and make it clear whether VAT is included. If packing and postage is extra, this also needs to be shown.
  • Payment – it is usual to make it clear that payment must be made in full before the goods are dispatched. Sometimes a credit card transaction comes with a warning for the merchant that there is a doubt about the validity of the buyer, so you can do further checks before sending the goods if there is a potential problem
  • Force Majeure – If you are unable to deliver due to some unforeseeable event such as a fire at the warehouse or a hurricane, you can reserve the right to cancel or suspend the contract
  • Warranties – you have a legal obligation to deliver goods that meet the description on your website and are of satisfactory quality so why not say this in your T&Cs as it can give the customers some comfort.

In addition, a customer who wishes to purchase goods online, using a credit card or some other payment method, should be required to confirm that he/she has read the terms and conditions and accepted them before proceeding to the checkout. In order to have evidence that the customer is aware of the terms on which goods are sold, the usual system is to have a ‘tick box’ which must be ticked by the customer confirming that the terms and conditions have been read before the sale process can be concluded.

For more information on legislation and regulations governing the sale of goods and services and consumer protection, there are various Government and other websites that provide useful information including DirectGov – http://www.direct.gov.uk – and the Office of Fair Trading – http://www.oft.gov.uk/. There is also useful guidance in more detail at http://www.which.co.uk/consumer-rights/regulation/distance-selling-regulations/

ContractStore has created some ready-made documents for online retailers:

What Artists and Designers Need to Know About Contracts

As an artist or designer, when commissioned to provide artwork for a client, it’s really useful – essential, some would say – to have the terms in writing.

Keep happy - protect your creations. Image from http://www.wpclipart.com

Keep happy – protect your creations. Image from www.wpclipart.com

 

While it can feel difficult for someone setting up in business to insist on the client signing a formal contract, at least be sure to confirm the main terms in writing in a letter or email.

I have come across more than one case where there is nothing in writing, and after several weeks of hard work the client is presented with the finished artwork and decides he doesn’t want to pay for it.

You have to avoid this sort of risk so here are some of the key points that any graphic designer or artist ought to identify and agree with the client.

Define the Work

It is sensible for the designer and client to have a clear understanding of the scope of work that is required. From the designer’s point of view, there will usually be a fixed fee and he doesn’t want to find that he is repeatedly being required to revise the designs to meet the client’s requirements.

Equally, the client does not know whether or not the designs will be suitable until an initial draft is produced. So, be practical and identify how many stages you will go through – e.g. initial concept, sample designs for discussion, and then the final product.

Timing

‘Time is money’ so you need to agree the timetable. Sometimes the client will have a deadline to be met. While this might put the artist under a lot of pressure, in many ways it can be better than an open-ended arrangement.

So even if there is no hurry, agree a time frame and if this gets extended by the client, reserve the right to ask for extra money. Otherwise you might find the client keeps changing his mind without expecting to have to pay for the extra work.

But unless a firm date is forced on you, use wording that makes it clear the dates are estimates and not guaranteed. This allows for some flexibility for a busy designer while avoiding the risk of the client trying to cancel because you have not delivered on time.

Fees & Payment

There will usually be a lump sum fee, but that is not always the case. Occasionally the fee will be related to the time spent on the project and sometimes there will be a mixture – e.g. a fixed amount plus £X per hour/day if more than a budgeted amount of work has to be performed.

Stage payments are always recommended and it is usual to have an advance and then maybe 2 or 3 further payments, with the final payment on delivery of the final work.

An advance of, say 30-40% means that the artist is not at risk of working for nothing, and the mere fact of the advance creates a commitment by the client, so there is less risk of him abandoning the project part way through. And in case he does, make it clear at the outset that the advance payment is not refundable.

In order to deal with extra services, you can either quote an hourly or daily rate at the beginning or else agree an extra fee at the time. Either way, be sure to cover this in writing and preferably not to start on the extra services until the fee – or your estimate – is accepted.

Cancellation

There is always the possibility of an initial design being prepared and the client then deciding not to proceed. In those circumstances, make it clear that the designer is entitled at least to retain the advance or get paid for the time spent.

Where a client does cancel, you should also make it a requirement that any designs or artwork already handed over should be returned, and that the client does not have any right to use any of the designer’s work unless the full fee is paid.

The last thing a designer wants is to find her ideas are passed on by the client to another provider for development.

Copyright

A designer will, in the absence of any agreement to the contrary, own the copyright in the artwork that she prepares.

A design may be commissioned for a business purpose – e.g. the design of a logo for a company – in which case, the client will usually want to ensure that it owns the copyright and that the designer does not have any residual rights to use those designs somewhere else.

In order to achieve this, the contract should contain a clause under which copyright and any other intellectual property rights in the design are transferred to the client. However, this should only apply once the full price has been paid. This is clearly important from the designer’s point of view.

In other cases, the agreement will say that the designer retains the copyright and, provided the client pays the full fees, he has a licence to use the designs for the purposes for which they were prepared. Other uses might justify a further payment e.g. if the client decides to sell postcards or bags using the commissioned works.

Moral Rights

Under European law relating to intellectual property, the “author” – i.e. in this case, the artist or designer – has a right to be named as the author in any document which contains that work. Sometimes these will be waived, as in the case of the company logo mentioned above.

In circumstances where the designer wishes to assert his moral rights, e.g. the designer of a book cover would usually be identified in all published copies – the contract should make it clear that the moral rights are reserved and the designer has the right to be identified as the author.

Client Obligations

It can be useful to make it clear that the client must respond promptly to any requests for approval, so as not to delay the project.

Occasionally, it can be advisable to spell out the reasons for the design and to stipulate that the work will not be used for any other purpose.

The man who designed the smiley did it for the company where he worked to cheer people up and he only discovered it was in use all over the world several years later. He never got paid anything after an initial fee of $45 for ten minutes work!

Termination

As there is no automatic right to terminate a contract, it is always advisable to include wording that allows the contract to be terminated if the client fails to pay or if either party becomes insolvent or commits a material breach of the agreement.

Useful Legal Downloads for Artists and Designers

What You Need to Know About Confidentiality Agreements

There are many reasons why you may need a confidentiality agreement or non-disclosure agreement (NDA) and they include the following:

  • You have an idea for a new invention or a new website business and you need support from other people in developing the concept, but without the risk they will take the idea and use it themselves
  • You are taking on someone to help with your business and you want to ensure that they keep your trade secrets, customer lists etc., confidential
  • You are thinking of selling your company and you need to disclose trading details to the potential buyer before you know if he will go ahead with the purchase
  • You want to exchange information and ideas with another business with the aim of setting up a new joint venture or jointly developing a new product.
Confidentiality Agreements needn't be fierce to be effective

Confidentiality Agreements needn’t be fierce to be effective!

Because of the need to protect your ideas when embarking on a negotiation, the first agreement you will sign with your (potential) new business partner is likely to be a confidentiality agreement.

Well-established companies are used to this so, if you are an individual with a good idea but are nervous about suggesting this to a larger organisation, there is no need to be – they should understand the reasons and be willing to comply with your request.  Be wary of those who do not want to sign and simply tell you to trust them!

Although the style and content of each NDA will vary, depending on the circumstances, there are some common features in most of them.

The agreement will quite often be in the form of a letter addressed by one party to the other in which case the recipient should be asked to accept the terms set out by signing and returning a copy to the sender: only when the letter is accepted (without any open issues or qualifications) will the agreement be effective.

Alternatively the agreement may  be more formal, setting out the name and address of the parties and the terms agreed between them and signed by both parties.

The agreement will identify the information and data that is covered by the confidentiality obligations.  Quite often the wording will be generic rather than specific, and refer to the ideas, designs, know-how and products and related information that are to be disclosed by one party to the other.

There will be a time period in which the confidentiality obligations continue.  There are often two elements to this.  Firstly, the agreement will usually have a fixed period in which the parties will discuss the proposed project and, if they do not decide to go ahead after that period, the agreement will come to an end.  However, the end of the discussion period will not be the end of the confidentiality obligations and the agreement will normally provide for those obligations to continue for a specified time, say 5 years.

When the fixed period ends, the agreement should provide for all confidential information and data provided by each party to the other to be returned or destroyed.

During the agreement there may be restrictions on the use of information – e.g. that it can only be accessed by those in the recipient company who need to know about it because they are involved in the discussions.  This may be coupled with a requirement that all those individuals are themselves subject to confidentiality obligations.

The agreement will usually contain some exclusions:  information that is already publicly available or obtained by the recipient awfully from another source will not be covered by the agreement.

When the arrangements are such that one party introduces the other to third parties that might be involved in the project, it is sensible to have a clause that prohibits that other party from entering into any direct dealing with those third parties for a similar project before some time has passed after the negotiations have come to an end.

The agreement may contain a requirement that a party that breaches the agreement will indemnify the other against all loss and damage it suffers from the unauthorised disclosure. And there may be a statement that as damages may not be an adequate remedy, the innocent party will be entitled to obtain a court order prohibiting disclosure.

ContractStore has a number of relevant agreements:

  • If you run a company that is interested in developing an idea or product that someone has brought to you and that person needs to be protected by a confidentiality agreement, we have a letter form that should suffice: http://www.contractstore.com/A119-confidentiality

For the full list: http://www.contractstore.com/confidentiality-and-non-disclosure-agreements

Why You Need a Long Term Supply Agreement

If you regularly source products from the same suppliers – or if you are a supplier with some regular customers – then it can often be of benefit for both sides, to set up a long-term agreement.

Advantages include:

  • planning ahead is easier
  • providing security of supply, for the buyer, and of orders for the supplier
  • pre-agreed pricing formula – predictable prices
  • the buyer can get a better price in return for the commitment
  • less admin – you don’t have to maintain purchase orders over and over again

This type of agreement can be useful in a wide range of businesses, from supply of raw materials in the construction industry to supply of goods to a retailer.

The milkman always delivers

Milk delivery is typically a long term supply
Image: Keystone View Co (http://hdl.loc.gov/loc.pnp/cph.3b04462) [Public domain], via Wikimedia Commons


Here are some of the basic terms you need to include in your contract.

General Scope

This establishes the basic agreement between the parties for the sale and purchase of products which will probably be defined in a Schedule.

Duration

The start date and initial period of the contract need to be specified.  This might be 12 months with the contract providing for it to be rolled over on a quarterly or longer basis until one side gives notice.  And since a long term contract involves planning ahead, each party should be required to give reasonable notice if it wants to bring the contract to an end: the buyer may need time to find another supplier and the supplier does not want to find he has committed himself to stock than he cannot readily sell elsewhere.

Quality Issues

The quality of the products is, in effect, going to be defined by reference to the specification which will be in a Schedule to the Agreement.  If the quality of any delivery does not meet the specification, the contract should make the Supplier responsible for their replacement.  In the case of some supply contracts, in particular raw materials such as coal or sand, the contract might usefully contain provision for independent testing of the material. And if the supplier is a wholesaler, the contract might require that samples are to be provided in advance if the supplier wants to source goods from a new manufacturer.

Quantities, Forecasts, Orders.

It is common to have terms that provide for the buyer to give regular forecasts of quantities, thereby enabling the supplier to be in a reasonable position to meet purchase orders.  Sometimes this involves an annual forecast which is then refined to a quarterly forecast and followed by monthly purchase orders.

Sometimes there will be agreed minimum and maximum quantities and these may be coupled with a “take or pay” provision.  In such a case, if the buyer fails to take the minimum quantity, he will pay for the shortfall.  Similarly, if the supplier fails to provide the minimum quantity, he may be penalised.

The contract will also deal with the requirements for placing an order, within minimum time periods and provision for delivery dates and a model order form can usefully be included in a schedule.

Pricing

The agreement will usually contain a schedule with details of prices but, since price adjustments in a long term contract are usually going to be necessary, there may also be a formula for price adjustments.  This could, for example, provide for a price adjustment each year by reference to the Retail Price Index published by the government in the supplier’s country.

Alternatively, prices might be adjusted by reference to the supplier’s price list or, if there is no formula, there could be a 3 month period of negotiation and if agreement cannot be reached, either party has the right to terminate the contract.  Sometimes there will be agreed discounts on list prices which may vary depending on the quantities being sold.

Payment

Generally there will either be payment on a monthly basis against invoices or, alternatively, especially in a cross-border deal, the buyer may agree to open a revolving letter of credit which will give the supplier greater security.

Payment dates and interest on late payment should also be covered.  In the UK the supplier may want to claim interest under the Late Payment of Commercial Debts (Interest) Act 1998, which allows interest to be claimed at 8% p.a. above Bank of England base rate. The supplier may also be allowed to suspend deliveries if payments are overdue for more than a specific period.

Deliveries, Risk & Ownership

The agreement will specify where deliveries are to be made and when they are to be made.  Method of transportation (and who bears the cost) can also be covered.  Both ownership and risk in product usually passes from the supplier at the delivery point.  Details of who is responsible for packaging or for the cost of storage if the buyer postpones a delivery date can also be dealt with.

Claims

Depending on the type of products and whether they are to be sold in the retail market by the buyer, there may be a clause dealing with defective product liability claims from third party customers.  In that case the contract is likely to put primary responsibility on the supplier but, if the buyer has modified any products before passing them on, the issues of liability could be complicated.

If the supply is for raw materials, a sampling and testing procedure may be appropriate, with reference to an industry expert if the buyer claims that the products are defective or sub-standard.

Termination

Be sure to include a clause that allows each party to terminate if the other commits a serious breach or becomes insolvent.

Force Majeure

In a long term contract unforeseen circumstances could disrupt the supply arrangements.  It can be useful to include a ‘force majeure’ or unforeseeable events clause so that if this occurs the party affected will not be treated as failing to perform the contract.  Examples of force majeure events can be included in the wording. As well as war and terrorism, fire and flood, there might be contract-specific items to be covered such as closure of a quarry that the supplier is relying on for his supply of rock.  If force majeure goes on for more than x months, either side can terminate the contract.

Limit of Liability

It might be sensible for the contract to limit liability for both parties – if the supplier fails to deliver an agreed quantity of material that is vital for the buyer’s business, he might agree to accept responsibility for paying the extra costs that the buyer incurs with another supplier but exclude liability for any loss of business suffered by the buyer.  Similarly, if the buyer suddenly cancels an order, he might agree to cover the supplier’s loss on that delivery if he has to sell it elsewhere at a lower price, but not pay as much as the full cost of the goods.

Disputes and Law

If a dispute occurs, it can be useful to have a three-stage process for dealing with the problem.  First, direct negotiation between senior executives, secondly, if this does not resolve the matter, the dispute can be referred to mediation.  Only after these processes can a dispute be referred to the courts or arbitration.

The form of contract is best put together with a set of terms and conditions plus a series of schedules dealing with the variable items such as details of the products, specifications, prices, minimum and maximum quantities, delivery point, price adjustment formula and a pro forma order form.

ContractStore has a long term supply contract template at: http://www.contractstore.com/A138-long-term-supply-agreement

We also have a number of contract templates for manufacturing and supply at: http://www.contractstore.com/goods-manufacture-supply

What You Need To Know About Cleaning Contracts

Setting up a new Cleaning Services Company – or expanding your existing one?  Make sure you have some proper Terms of Business.

Make sure your cleaning contract is spotless

Make sure your cleaning contract is as professional as the work you do

 

Terms of Business do not need to be long-winded – and having them not only protects you and your business, but also helps to give your business a professional look, especially when you are bidding for work from a new client.

As well as having a document with the right terms, it is sensible to prepare the documentation in a user friendly format. My usual approach is to have the contract in three parts:

  1. Printed Terms of Business which you can show to a potential client if he asks for them;
  2. A Schedule prepared for each client that specifies the job location, services, hours, charges and other relevant information and
  3. A short one page agreement (or letter) confirming the appointment, start date etc., to be signed by you and the client – with the other two documents attached.

What terms should you include in the Terms of Business? Here are the basics:

Services 

Briefly describe the services you provide – e.g. specify the general cleaning services, with details for each client set out in the separate schedule.  It can also give comfort to a client to see that the Terms state that you take care to vet/check the competence of any new staff, that they will be required to comply with any client security procedures etc.

Duration & Notice

This will say what the minimum contract period is – maybe 6 or 12 months, whether it continues if not terminated at the end of that time and how much notice needs to be given to bring it to an end.

Charges & Payment

Either set out the agreed charges here or put them in a schedule.  In addition you should say how often invoices will be issued and the payment date – e.g. weekly with payment due 7 days from the invoice date.  It is sensible to refer to VAT and to reserve the right to increase charges on an annual basis.  You may also state that interest can be claimed on late payment (for B2B contracts the law allows you to claim 8% above Bank of England base rate).

Sometimes rates for extra services are set out in a schedule.  And remember to specify any expenses that are payable in addition to the charges.  The right to suspend services for late payment (as a softer to alternative to ending the contract) is sometimes included, usually after a 7 day notice period.

Client’s Obligations

Practical matters can usefully be covered here – e.g. the client to allow access during agreed working hours, explain all alarm and other security arrangements (and any changes), provide storage for your equipment etc.

Damage or Loss of Property

Make it clear that your liability for loss or damage to client’s property is limited to cases where you or your staff were at fault and you may want to state your liability for claims (above a certain amount) will be limited to the amount you can recover from your public liability insurers.

Client Complaints

It can be useful to insert a complaints procedure in the Terms – making it clear that complaints have to be made promptly, say within 48 hours, and that they will be properly investigated and dealt with by you.

Termination

Be sure to include a clause that allows you to terminate at any time by giving notice if the client does not pay, breaches the agreement or becomes insolvent.  Sometimes clients like to see this clause written on a mutual basis.

Force Majeure

It can be useful to include a ‘force majeure’ or unforeseeable events clause so that if this occurs you will not be treated as failing to perform the contract – although you will need to give notice and do whatever you can to overcome the problem.

No Poaching Your Staff

The risk of a client offering good cleaners a job is a real risk for cleaning companies and it is a good idea to make it clear this would be a breach of contract – both during the life of the contract and for a period after it finishes. Sometimes the Terms will require a client to pay a fee – equal to say 3 months’ salary – as damages if the obligation is broken.

Limit of Liability

It is always wise to limit liability – but be sure the limit is reasonable. Often the clause will firstly exclude liability for loss of profit and other indirect losses incurred by the client and secondly by capping the liability at a fixed amount.  Sometimes this will be related to the fees that are payable under the contract.  Since it is not permissible by law to limit liability for death or injury, this risk has to be unlimited and identifies as such.  While the contract may not require it, your firm should take out public liability insurance to protect against risks and you can then limit that liability to the amount you get form your insurers.

Disputes and Law

If a dispute occurs, it can be useful to have a three-stage process for dealing with the problem.  First, direct negotiation between senior executives, secondly, if this does not resolve the matter, the dispute can be referred to mediation.  Only after these processes can a dispute be referred to the courts.

ContractStore offers various templates that can be used for cleaning contracts, including:

 

What You Need To Know about Manufacturing Contracts

If you have invented a product or you own the patents to a product and you are looking for a manufacturer, you will need a formal contract to protect you. But what should be in it?

Many businesses are looking overseas to China and other countries to lower their manufacturing costs and access specialist skills.

So if you are looking for a manufacturer, at home or abroad, here are some tips on what to include in your contract, often taking the form of a Licence to Manufacture. This can be more like a partnership between an inventor and manufacturer, or a simple ‘you make it, but I own it’ agreement.

Manufacturing contracts can vary quite a lot depending on the type of product, location of the factory etc., but there are a number of consideration that are common to most of these contracts.

Clearly, before you get to the stage of agreeing detailed terms, you will need to find the right company for your product and do some due diligence to satisfy yourself that the company can not only produce goods of an acceptable quality but also they can deliver the quantities you need within the right time frame.

You will also want to consider whether your manufacturer is simply going to make the goods and ship them to you, or whether he has the right to sell them as well – and if so, where?

The Licence

First of all, the main purpose of the contract will be set out. This will usually provide for the inventor or patent owner to give a licence to the manufacturer, the licensee, to manufacture the product.

The licence could be exclusive – i.e. the licensee is the only company with manufacturing rights – or non-exclusive.

Sometimes it may be exclusive but within a territory – e.g. the only factory authorised to produce the goods in China.

If your licensee wants the right to subcontract the work to others, you need to be careful, as the more the direct relationship is diluted, the more the risk of patent infringement.  However, if some part needs to be sourced from a specialist, a sublicence can make sense.  Just make sure the contract is clear that subcontracting does not relieve the licensee from his contractual obligations to you.

Duration

An arrangement such as this will generally need to be reasonably long-term, especially if there is a development phase before the product is ready for the market, as this could involve substantial time and expense on the part of the licensee.

So a term of 5 to 10 years could be appropriate, or even longer.

Development Support

Development of a new product is rarely a straightforward matter, so your input into the development is likely to be needed.  You may want a clause that limits the amount of free time that you give your licensee. Sometimes an inventor will get a consultancy fee for this work.

Pricing and Royalties

If the product has already been developed, and all you are looking for is a factory to produce the goods, then the contract can be straightforward and provide for payment against an agreed ex-works price list.

If, however, the manufacturer is going to bring your product up to an acceptable manufacturing standard at his expense and then have the right to sell the goods, you could be better off having a royalty arrangement.

This could include an up-front payment on signing the agreement, and then for the duration of the agreement, a royalty calculated as a percentage of the sales priceThis is likely to be the ex-works or wholesale price.

You might want to have the contract provide for a minimum royalty, so as to reduce the risk that the manufacturer reduces quantities in favour of some other product.

Record-Keeping and Payment

If you are buying the goods for resale, you will normally want to pay on delivery – so as to avoid the risk of paying for goods before you know they meet the specification.

If the manufacturing is overseas, the seller will want payment on shipment, so it can be useful to have your own agent in the country who can check the goods before shipment.  Insurance of goods in transit also needs to be covered, either by the supplier or the buyer.

When there are royalty payments and the manufacturer is also selling some or all of the products, it is usual to have royalties accounted for on a quarterly basis, with interest payable on late payment amounts.

And, whatever the payment terms, be sure to have a clause in the contract that gives you the right to access the Licensee’s accounts – so that you or your local agent can verify the production and sales figures – and, sometimes, the manufacturing costs as well.

Territory

In today’s global market, you need to agree in which countries the manufacturer can sell the products and whether he will have exclusive or non-exclusive access to those territories.

Intellectual Property Rights

It is essential to spell out who owns the designs and other IP rights in the product.  This will normally be the licensor, while the manufacturer as licensee has only the production rights.

As licensor you may be well advised to register your patents in the country of manufacture and anywhere else where the goods may be sold  And your licensee may be required to notify and support you if any third party is found to infringe your rights by producing or selling counterfeit goods.

Improvements

There is always a possibility that either party may want to make changes or improvements to the design and it is sensible to cover this in your contract:

1. by only allowing modifications that you have agreed to

2. by dealing with the ownership rights. A shared ownership is sometimes the right approach if your manufacturer has improved the product; this could also impact on the royalty arrangements.

Confidentiality

Clearly, this is an agreement where confidentiality is quite important and an appropriate clause should be included.

Termination

You need the right to bring the contract to an end if your licensee breaches the agreement or becomes insolvent.

You might also want to terminate if he fails to produce or sell enough products.

And the clause should set out what happens to goods that have already been manufactured when the contract comes to an end.  Do you get them or can he sell them?  A run-off period may be sensible.

Law & Disputes

If the licensor and manufacturer are in different countries, you need to get advice on how to get disputes resolved and which country’s law governs the contract.  A two or three stage dispute resolution process is often recommended– direct negotiation, then mediation (if agreed) and finally the courts or arbitration.

ContractStore has a number of contract templates for manufacturing contracts which you can find here: http://www.contractstore.com/goods-manufacture-supply

They include: